Archive for the ‘New Solutions’ Category

What a new online auction means for new-car Sales

By LeAnne Graves

competition will play a large factor in this online auction territory. Dealer industry will have to remain competitive with rebates and incentives offered by manufacturers at dealerships.

Car dealers are most happy when their lots resemble revolving doors — old inventory going out and new cars coming in. Moving aging vehicles has always been a problem for new car dealers.

To combat this problem, dealers have turned to online auctions as a means of supplementing their other sales channels.

Used car dealers have many options, such as Manheim’s OVE.com auction or GMAC LLC’s SmartAuction. Now, new car dealers have a similar option with the June release of DealerIndustry.com LLC’s Dealer-to-Dealer New Car Auction.

Dealers offered mixed reviews about the new product — and about online auctions in general. Finance manager Scott Cramer says that aged units are not a significant problem for many dealers in the new car industry. At his lot, Grossinger Volvo in Lincolnwood, Ill., selling 2007 models is the top priority. However, Cramer says he does not see much of a panic in the aging cars perhaps as a result of an efficient floorplan.

Grossinger Volvo currently uses Manheim’s OVE, selling three or four cars a month and buying one or two vehicles, but Cramer notes that most dealerships have access to other dealers’ inventory via the manufacturer’s Web site.

“I think the [New Car Auction] is a great tool that dealers can use, but it looks too similar to other auctions that we already have dealings with, and new-car inventory not really being an issue, I’m just unsure if we’d use this,” says Cramer. DealerIndustry’s auction is meant to act as a central resource for new car dealers, says co-founder David Ballanger.

Dealers may go to the site and register an unlimited number of VIN codes for vehicles to be auctioned. They can set parameters, such as pricing points and rebate details, and the system will manage the inventory and bidding process.

For instance, if one dealer has eight Toyota Camrys with newer models coming in, the previous eight are now aged units. Previously, dealers might sell those Camrys at retail store price and break even. With DealerIndustry, sellers pay $99 and buyers pay $49 when a car sells. There are no listing fees.

More than 300 dealers signed up during the two-week period following the product’s release, Ballanger says. The company’s goal is to have 5,000 dealers online within 12 months. Competition will play a large factor in this online auction territory. DealerIndustry will have to remain competitive with rebates and incentives offered by manufacturers at dealerships. “We don’t necessarily have overstock concerns as GM puts bonus money on aged inventory to give dealers extra incentives,” says Vince Peckens, sales manager at Demaagd Auto Group, in Battle Creek, Mich.

DealerIndustry’s Ballanger agrees this is common issue, but not a large concern as incentives will fluctuate. While employed at a Chevrolet dealership, Ballanger recalled having new S-10s more than 200 days old with no incentives or ways to move the units. Each vehicle cost approximately $2,000 to move.

Auctions may just be the key to unlocking that revolving door

Guidebooks Tighten Up Values, Altering Loan Terms

by Charles Keenan

The recent volatility in used-car prices has put pressure on the industry’s guidebooks on residual values to deliver data faster and with more accuracy. Last year’s plunge in prices for used sport utility vehicles and light trucks led to wide swings between stated book values and auction prices. That left lenders having to rely on data as much as two months out of date, depending on the provider.

“Things were slow from a guide perspective,” says Mike McClintock, a group vice president at M&T Bank Corp., Buffalo, N.Y. “The bank was put behind the eight ball, because we couldn’t catch up in time” to the true values. As a result, lenders are demanding more accurate information, with some willing to switch guidebooks to get it. American Honda Finance Corp. started requiring dealers to use Black Book for used-car values last year, says Ricky Beggs, a vice president at the Gainesville, Ga.-based guide. Black Book provides weekly updates and relies heavily on auction data for its valuations.

“Lenders want to make sure they are using the right collateralization for the vehicle they are going to be lending against,” Beggs says.

In response, guidebooks are retooling their business models. Kelley Blue Book, based in Irvine, Calif., last December began updating its data weekly, rather than every two months. It is also collecting more auction data.

“There is a need for timely information that can’t be driven by a publication schedule,” says Paul Johnson, president and publisher of Kelley Blue Book. “Lenders want more timely values.” McClain, Va.-based NADA Used Car Guide will reduce its publication frequency in the third quarter from monthly. Mike Stanton, vice president and COO, was to meet with a dozen bank clients in the late winter for feedback. Stanton argues that auction values can be distorted by the number of dealers in attendance or fleet vehicles in the lanes. Historically, guidebooks have set widely different values for particular vehicles, even in the same region. For used cars worth $15,000, price differences of $2,000 are common, says Greg Goebel, a consultant in Sarasota, Fla.

That kind of a price difference didn’t matter to lenders during the credit boom, when customers could trade in a new car and roll any negative equity into a new loan, Goebel says. Yet, published values became meaningless when values for gas-guzzling cars plummeted last summer.

“In such a volatile market, the books had no resemblance to reality,” Goebel says. Honda’s switch to Black Book was viewed by its dealers as a cautionary move, as the guide is perceived to often publish lower values than its competitors. (Honda declined to comment for this story.) Yet for Hondas, the published values are frequently thousands of dollars below that actual auction prices of off-lease Hondas, even before reconditioning, says Chad Bastia, F&I director at Rick Case Honda, a dealership in Davie, Fla. That means there’s a bigger gap between what Honda advances and the market price, which can crimp sales, Bastia says. “Without a solid credit file, it is very difficult to get pre-owned vehicles to book without cash from the customer,” Bastia says. “You are booking off of Black Book average” trade-in value. Still, guidebooks have worked to improve their accuracy. Kelley Blue Book’s methodology changes capped a two-year effort, with “millions of dollars” invested in the new system, Johnson says. As part of its overhaul, Kelley has expanded data collection to include electronic feeds of 75 percent of the auctions nationwide.

“We have really accelerated and expanded the breadth and depth of the information we are collecting from the auction houses,” Johnson says. “It is critical.”

The move by lenders comes down to reducing risk, Goebel notes.

“They want to know the advance they are putting out there gives them the expected exposure and not something significantly greater,” he says.

Dealers Push Service to Make up Revenue

by Mary Wisniewski

Given the dismal economy, some dealers only see potential for their car service revenue to do well in 2009. To capitalize on this potential and attract new customers, dealers are marketing their service more. Hunterdon Auto Resource Center is one such dealership that expects to market its car service more this year, says Ernie Tufold, general manager.

Marketing its service offerings is a little easier for the New Jersey-based used-car dealership because it started as a repair shop. Now, Hunterdon Auto continues to service all brands, with the ability to do everything from repairing tires to installing moon roofs.

To entice new customers, the dealership offers perks. For example, it decided to offer a shuttle service for some of its corporate accounts a few months back. Hunterdon Auto also recently purchased a customer retention tool, which will allow it to reach out to customers on more occasions, sending them anything from an anniversary note to an oil change reminder notice, says Tufold. To further entice customers to come in for service, the dealership is considering issuing coupons this year.

“We are trying to figure out who and when we will target,” Tufold says. Hunterdon Auto Resource Center is certainly not the only dealership beefing up its service marketing to benefit from potential business.

Dealers “are expecting service to drive their dealerships,” says Jonathan Ord, chief executive officer at Dealersocket, a customer relationship manager technology provider. He notes there is a shift in the automobile business, from focusing on the front-end to the back-end.

One new way dealers are marketing their back-end business is by utilizing their vehicle databases to conduct marketing campaigns, Ord says. This works when dealers look at their key metrics to see what has driven past customers to make purchases. This technique is especially effective when it comes to service promotions, he says. “More companies are looking to use their databases better and better,” Ord says. “It’s so much cheaper than what they used to do.”

Not all dealers will offer more promotions in 2009 to attract new service customers. Toyota Town of Stockton in California will offer about the same amount of service promotional products in 2009 as it did in 2008.

Tony Mattice, service manager, says the dealership runs special discounted service prices to try to get people in the door and stay competitive with companies like Jiffy Lube.

Direct marketing by mail is the mosteffective channel to draw in business, Mattice says, describing television spots as more of a tap on the shoulder.

Toyota Town markets to some 10,000 to 12,000 people, using both an in-house list as well as a list from Toyota. What special promotion the dealership offers depends on the season. For example, a discount on air conditioning service is more likely to run in the summer. In November and December, the dealership hosted a canned food drive, as well as participated in Toys for Tots. When people provided a donation, the dealership gave them a $20 voucher for their next service visit with hopes to lure them back.

Other dealers simply rely on old-fashioned methods like word-of-mouth to drive new service business. Consider Butler, Mont.-based Max Motors. The dealership does direct marketing campaigns and occasional radio spots, says service manager Chris Sorrell. But he notes that most traffic comes from its good reputation.

“We’re pretty swamped for service,” he says. Sorrell credits this to the dealership’s location, a small town, and the positive customer service the dealership provides. For example, Max Motors picks up and drops off vehicles to its customers. “We’re just old-fashioned,” he says.